VIEWS: 156 PAGES: 2 CATEGORY: Investments POSTED ON: 4/8/2010
Overall, stock options offer a viable means to earn lucrative profits by gaining power to control more shares with a small amount of money.
What are Stock Options – Their Types and Benefits If you are wondering what are stock options, then you should read through this article to find out more about them. In simple terms, stock options provide the holder the right to buy or sell stocks at a price agreed upon by the involved parties before the contract expires. Of all the available investment routes, stock options are perhaps the most flexible, creative, and innovative financial derivative instruments ever created. Option trading is not only limited to those who are involve in the stock market but they are also made available for employees who wish to participate in the growth of their company. Before deciding to participate in this kind of trading practice, it is important that you have a deep understanding on how it works. Stock options can be classified in several forms which include the following: Over the Counter Stock Options – These are highly customized stock options that are traded over OTC market. They have lesser liquidity and are not widely accessible to the public. Exotic Stock Options – These are complex and customized types of stock options that are only traded in OTC markets. Employee Stock Options – These are stock options that are typically offered by companies to their employees. With employee stock option, the company acts as the seller while the employees are the buyers. Companies usually give them as a form of incentives to their employees. Exchange Traded Stock Options – These are stock options that give owners the right but not the obligation to purchase or sell financial assets. ETO contracts typically include the quantity of the stock, the underlying asset, and the expiration date. Many are attracted on acquiring stock options due to the following reasons: They require small capital but provide greater leverage. They offer flexibility to change from one market to the other without significantly affecting current share holdings with the help of synthetic positions and synthetic option strategies. They do not have margin requirements, and maximum loss is only limited to the amount of money invested on the contract. Overall, stock options offer a viable means to earn lucrative profits by gaining power to control more shares with a small amount of money.
"What are Stock Options – Their Types and Benefits"